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Amazon's Square-Like Payment System Could Be Data Goldmine

UPDATE: Retailer Says System Is not a Data-Play

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Amazon introduced a Square-like mobile credit card payment system on Wednesday, promising small merchants low transaction fees and the ability to "track sales and get business insights with the app."

But the promise for Amazon could be far richer. The ecommerce giant, often at odds with small retailers, stands to gain a lot of additional data representing what people buy in the real world if its free Local Register payment app takes off.

Such information could be used by Amazon in multiple ways, such as enhancing profiles of people who buy on Amazon to better target products to them, or to give brand advertisers information that helps them understand what people buy in stores, what they buy online, and where.

"They already have an enormous amount of shopping data and this only increases it," said Rob Gatto, senior VP-media and advertising at data services firm Neustar.

UPDATE: A spokeswoman for Amazon took issue with such speculation, saying the company "all data from Amazon Local Register customers is securely protected and walled, it will not be used for any purpose other than fraud protection and risk management for Amazon Local Register."

Advertisers and data firms that serve them can already see reports from Mastercard and other credit-card companies that show some shopper data. However, said Mr. Gatto, they usually are only able to learn how much people spent with a particular retailer, rather than product-level data. Amazon's system could give the company lots of data at the SKU- or product-level.

If enough small retailers purchase the $10 Amazon card reader, it will generate "a bunch of additional SKU-level data," said Mr. Gatto. "I believe it will help them work in the offline-to-online space because every advertiser I talk to wants to close the loop," he said, referring to the desire to measure the impact of digital advertising on in-store sales and vice versa.

"If I'm Amazon, I have a bunch of existing SKU-level data and now the ability to match that off my site to paint a more complete picture of the day-to-day shopping habits of people."

The Amazon system will compete with Square, another easy credit-card payment system that already has some penetration among small businesses. Amazon will charge early adopters 1.75% of each transaction, and increase that rate to 2.5% in January 2016. Square charges 2.75% of each order, and also offers clients sales reports and analytics.

However, considering Amazon's negative reputation among some small merchants who have lost market share to the convenient online shopping bazaar, it remains to be seen whether the ecommerce firm will make inroads among small business owners. Some bricks-and-mortar establishments might be concerned that Amazon will glean sales data it could use to create efficiencies for its own operations, thus enabling the Seattle firm to strengthen its already-dominant business.

Jim Harold, group VP for retailers at Acxiom, suggested that Amazon might be using the mobile payment system to explore going into bricks-and-mortar itself.

"They would own the customer experience within a physical store," said Mr. Harold.